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Unformatted text preview: ECO 2302—004 Principles of Microeconomics
Dr. Susan Williams McElroy
UT—Dallas Study List for the Final Exam
*’ The ﬁnal exam is cumulative and so questions may be taken from any chapter we covered this semester. The exam will emphasize material covered since the midterm
exam, which is Chapter 11 forward. For each chapter, the review sheets posted on WebCT provide a summary of the
material students need to have mastered in order to do well on the ﬁnal exam.
The exam will include the following types of questions: \/ Multiple choice \/ Problems (involving calculations) ‘/ Fill in the blanks
V Short—answer questions Chapter 1: The Scope and Method of Economics
I What is economics?
I How do economists approach problems?
I What is the marginal approach?
I Use of words, graphs, and equations in microeconomics — make sure you are
comfortable reading and interpreting graphs Chapter 2: The Economic Problem: Scarcity and Choice
I What are scarcity and choice?
I Why is scarcity at the heart of economics?
I Production possibilities frontier (PPF) ~ what does it show and what principles
does it demonstrate? Chapter 3: Demand, Supply, and Market Equilibrium
I What is demand? — know how to graph a demand curve What is quantity demanded? What are factors that determine demand? What is supply? — know how to graph a supply curve What is quantity supplied? What are the factors that determine supply? Movement along demand curve vs. shift of demand curve Movement along supply curve vs. shift of supply curve Example problem: Given the algebraic equations of the demand and supply curves, know how to ﬁnd the equilibrium price and quantity using algebra or graphing. I Example problem: shifting of demand and/or supply curves as a result of certain
events — how are these changes reﬂected in the supply and demand framework? Chapter 4: Demand and Supply Applications Material students required to know from this chapter is summarized in the
review sheet posted on WebCT Know what price ceilings and price ﬂoors are; be able to represent both
graphically on a supply and demand diagram Understand applications of the basic supply and demand model Chapter 5: Elasticity Material students required to know from this chapter is summarized in the
review sheet posted on WebCT Know general elasticity formula and how economists use it Know deﬁnitions of the various types of elasticity and how to calculatethem,
and don’t forget the changes included in the formulas are percentage changes.
Example problems: calculating different kinds of elasticities Chapter 6: Household Behavior and Consumer Choice Chapter 7: Concept of utility Budget constraint, indifference curves and how consumers make choices
subject to income constraints in order to maximize their utility How to graph a budget constraint How does the budget constraint change when income changes? How does the budget constraint change when prices of goods change? How will the consumer’s utility—maximizing choice (consumption bundle, or
combination of goods) change if income, prices, or both change? Consumers’ utility-maximizing principle of equating the ratio of the marginal
utility to the price across all good consumed (see textbook on page 119,
review sheet, of Power Point slides for details — Note: equations students need
to know are not reproduced in this study list) Diminishing marginal utility Example problems: budget constraints and indifference curves, ﬁnding the consumer’s utility—maximizing choice (think about point of tangency between
indifference curve and the budget constraint) The Production Process: The Behavior of Proﬁt—Maximizing Firms
Concept of production and how production is not limited to ﬁrms.
Decisions all ﬁrms must make and the basis of those decisions Short—run v. long—run decisions Isocosts and isoquants — What they are and how to plot them Which production technology will the proﬁt-maximizing ﬁrm choose?
Cost-minimizing equilibrium condition for the ﬁrm Proﬁt and economic costs 7 Example problems: ﬁnding the output level that maximizes proﬁt, applying
the MR=MC rule, determining whether the ﬁrm is earning a proﬁt; calculating
proﬁt Chapter 8: Short—Run Costs and Output Decisions Decisions proﬁt-maximizing ﬁrms make and the basis of those decisions
Cost deﬁnitions and how they relate to each other Difference between the short run and the long run On what basis does the ﬁrm decide whether it should shut down in the short
run? Example problem: Completing cost tables, so students need to know how to
calculate the various cost measures Chapter 9: Long-Run Costs and Output Decisions Difference between the short run and the long run On what basis does the ﬁrm decide whether it should shut down in the long
run? Economies of scale, constant returns to scale, increasing returns to scale,
decreasing returns to scale Chapter 10: Input Demand: The Labor and Land Markets How does the proﬁt-maximizing ﬁrm decide how much of an input to use in
production? Focus on the labor market and labor as an input. We spent much more time
talking about labor than we did talking about land. For land, the main thing to
know is that land is ﬁxed in supply and what difference that makes in terms of
interaction of supply and demand. Know deﬁnition of marginal revenue product and how to calculate it for all
inputs. Example problem: using marginal revenue product to ﬁgure out how many
workers the proﬁt-maximizing ﬁrm should hire. Chapter 11: Input Demand: The Capital Market and the Investment Decision Know what the capital market is and what roles households and ﬁrms play in
the capital market. Deﬁnitions of interest, loans, demand for new capital In this chapter focus primarily on the material in the appendix, present value
and the time value of money Present value (PV) formula and where it comes from
Example problems: Using the PV formula to calculate the present value of
o a sum of money to be received a speciﬁc number of years from now,
assuming a particular interest rate
0 a stream of payments, income, or proﬁt (could also be increases in
proﬁt) over time, assuming a particular interest rate Chapter 12 —— We skipped this chapter, so the only thing students are responsible for in
this chapter is the following: why economists consider perfect competition as a market structure to be
efﬁcient (you need to understand this concept in order to be able to compare
perfect competition and monopoly) The “key efﬁciency condition” — see explanation and graph on page 251 in the
textbook Chapter 13: Monopoly and Antitrust Policy Know what a market structure is and why monopoly is considered a form of
imperfect competition Deﬁnition of monopoly as a market structure, that is, “pure monopoly” as an
extreme at one end of a continuum Characteristics of monopoly Output and price determination under monopoly — how does the (proﬁt—
maximizing) monopolist decide how much to produce and what price to
charge? ~ so must understand why and how the demand and MR curves are
different under monopoly The monopolist as a price-maker (unlike the perfect competitor, which is a
price—taker) Students need to understand the graphs in the textbook (graphs are also in the
Power Point slides, and some are in the review sheet for this chapter)
Students are not responsible for the material on antitrust policy, but they do
need to know the deﬁnition of antitrust policy. Example problem: how much will the (proﬁt-maximizing) ﬁrm produce?
What price will it charge? How much proﬁt will it earn? Chapters 14 and 15: Oligopoly, Monopolistic Competition Deﬁnitions of oligopoly and monopolistic competition and why these are
examples of imperfect competition (so must know the deﬁnition of imperfect
competition) What happens in imperfectly competitive markets when ﬁrms cooperate (or
collude)? What is likely to happen when ﬁrms compete? Students do not have to know details of game theory or the prisoner’s
dilemma, but they should understand why game theory and strategy are
relevant in the context of imperfectly competitive markets — and that is
because in order to decide what they are going to do, ﬁrms take into account
what other ﬁrms do. Students need to know some examples of oligopolies and examples of
monopolistic competition. What is industry concentration and how do we measure it? Think of in—class
exercise we did using ﬁrm concentration data — what percentage of the total
industry is accounted for by the 4, 8, or 20 largest ﬁrms? What kind of
information do you need for this analysis? Chapter 16: Externalities, Public Goods, and Social Choice
I Material students required to know from this chapter is summarized in the
review sheet posted on WebCT. '
a Know deﬁnitions of externalities and public goods
I Students are not responsible for the material on social choice. Chapter 17 —- We skipped this chapter, so students are not responsible for material in this
chapter. Chapter 18: Income Distribution and Poverty I Material students required to know from this chapter is summarized in the
review sheet posted on WebCT I What is income distribution and how is it measured? How do economists
answer the following question based on an income distribution: Have the rich
become richer? Have the poor become poorer? I Deﬁnitions of Lorenz curve and Gini coefﬁcient (also called Gini ratio) I Students need to know how to read Table A—3 from the following report by
the U.S. Census Bureau. SOURCE: U.S. Census Bureau. 2008. Income, Poverty, and Health
Insurance in the United States, 2007. Full report is available online at the
following URL: http://www.census.gov/prod/2008pub3/960-235.pdf Date accessed April 15, 2009. I Graphing and analysis: know how to graph a Lorenz curve based on from
income inequality statistics that are provided; know how to compare one
Lorenz curve to another; know how to compare one Gini coefﬁcient to
another (what do differences in Gini coefﬁcients mean conceptually?) I Note: Students are not responsible for material in the textbook on antipoverty
programs and the redistribution debate. Extra Credit:
Possible topics for extra credit questions include but are not limited to the following: I The article entitled “Social Beneﬁts of Education” by Nevzer Stacey, posted
as a PDF ﬁle on WebCT under the “Articles” link — relevant to the topic of
externalities. I Current events articles posted on WebCT under “Exams and Quizzes” —
Students will not be tested on the current events articles we discussed in class. I More challenging questions of all varieties including those requiring
calculations! ...
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